mortgage007

I have worked in the mortgage banking industry for 30 years and have been through many ups and downs of the market. The industry is regulated by several layers of state and federal laws that really are adequate to have prevented the current crisis we face in this country concerning credit, housing and real estate foreclosures. Most staes require that a mortgage broker take a course, pass a stae adminited test and then apply for a license to originate mortgage loans in that state. Of course these states differed in the way this was done and the difficulty of getting licensed. However, the states that are now suffering the greatest losses, such as California, FLorida, and Nevada, are the states with the most difficult exam and screening. On the federal level, the RESPA act, governs all mortgage and other lending activites and requires all states to comply with their rules. They are ridgid, explicit and well thought out if they are followed. RESPA is an acronym for "Real Estate Sttlement and Procedures Act". It is this act that requires the "truth in lending" disclosure and many other disclosures that explain to every borrower exactly what they are paying and how their loan will work. They require that documents be signed and redisclosed in a timely fashion if anything changes in the loan fees or terms. Lenders and brokers are subject to severe penalties and sanctions both civil and criminal if these laws are violated. There have always been strict undeerwriting guidelines to determine a borrower's ability to handle the loan payments.
Even the so called "no qualifyer" loans or "stated income loans " or no documents loans
required the lender to use the "test of reasonableness" concept when approving the loan. In other words, someone who wants a $500,000 mortgage and claims to have put down 20% of the sales price but works as a cashier at a grocery store and has no assets or lifestyle to support the income needed, should not be given the loan. Believe me when I say that the loan originator knows what is going on and knows when the borrower is lying about things. The borrower's credit report tells a lot about lifestyle and it alone can be reason to deny the loan. Of course, the problem is that you must have loan officers and originators that are basically honest people who do care about their actions. The rules in place now will suffice if they are enforced by the administrative side of government and therefor we do not need to legislate more regulation to be ignored as the present laws are. What on earth would we add to the current regulations that already exist. If you give me an example of a bad loan, I can tell you exactly where it should have been stoppped before it ever was funded.

Lets enforce the law and we will all be OK.

Redlemon

By what mechanism do you propose that enforcement be stepped up?

__________________
I can't read your signature. Sorry.

flstf

If the rules you mention are followed and people can only buy what they can afford with a conventional mortgage won't real estate fall another 20 to 50%? Isn't that what is happening now? The question is why did the big banks, insurers, etc.. approve, bundle and wrap the future of their companies up in these unsecured overpriced packages. How could they not see the inevitable price correction?

aceventura3

The market needs reassurance. The market needs to think someone is in control, real or not. The federal government could let the market self correct, which it would do and it would rebound. Or, they can "do something", inject some assurance, let people feel good and then let the market recover. The only question is - will they do more long-term damage than good?

__________________
"Democracy is two wolves and a sheep voting on lunch."
"It is useless for the sheep to pass resolutions on vegetarianism while the wolf is of a different opinion."
"If you live among wolves you have to act like one."
"A lady screams at the mouse but smiles at the wolf. A gentleman is a wolf who sends flowers."

mortgage007

The primary thing that needs to be done is to have compliance people who review files for adherance to all state and federal regulations. Quality control is essential in each company or even for the self employed sole proprietor. Again, there are disclosures (dozens of them) that are signed by borrowers at loan application and then again at closing. Some issues are disclosed on several different forms saying the same thing. Borrowers have understand the loan and demand that their loan broker or bank expalin it to them and if they don't they should not do business there. New regulation would just be redundant.

Nimetic

Is it that the original lender knows the situation, but that N levels down the chain - once derivative financial products are created, this information has been lost?

One thing that heard on radio was that the ratings agencies were rating the products that they sold themselves. If this is case, the buyers were bloody stupid to fall for that.

flstf

I think the buyers of these bundled packages, etc..thought they were protected with policies bought from AIG and AIG didn't have the money to cover what they sold or something like that.